Home equity is at an all-time high. Borrowing money secured against your home can be a great way to consolidate debt and get cash for home improvements. When considering borrowing against your home’s equity, you typically have two options: you can do a full refinance and replace the existing loan or obtain a loan against the available equity in your home. This latter option either comes as an equity line or equity loan. The previous post HELOC VS. CASH OUT covered how to tell if a full refinance or a new second loan makes sense. Rather than giving up their first loans at a lower interest rate, homeowners may prefer to obtain the equity line or the equity loan. We believe that a fixed-rate equity loan provides more advantages than the typical home equity line of credit.
Here are some of the advantages and disadvantages of each.
- Interest-only repayment for the first 10yrs (lower payment)
- Ability to draw as you need the money, not before.
- Lower starting rate than fixed loans
- Adjustable rates tied directly to the Fed actions (very likely to go up)
- Payment adjusts after interest only period
- A line of credit can be cut by the bank anytime
Fixed Equity Loan advantages
- Fixed-rate loan
- Steady/predictable repayment
- Likely to be a lower rate in the long-term
- The lender cannot lower the loan amount
Fixed Equity Loan disadvantage
- The initial rate is higher
- Payment includes principal and interest
- Draw all funds upfront
While the initial interest rate may be higher, with rates continuing to rise, we feel that a fixed loan will better serve most of our clients. This is particularly true for homeowners using the funds for long-term borrowing such as home improvements. Contact Us today!